Good afternoon, welcome to Netflix Q4 2017 earnings interview. I'm Spencer Wang, Vice President of Investor Relations and Corporate Development. Joining me today are CEO Reed Hastings, CFO David Wells, Chief Content Officer Ted Sarandos, and Chief Product Officer Greg Peters. Our interviewer this quarter is Todd Juenger from Bernstein. Before we begin, though, please remember that we will be making forward-looking statements, actual results may vary. With that, let me turn it over to Todd for his first question.
Thanks, Spencer. Just to get things rolling before we get into the details, the one thing that makes this quarter different than other quarters is technically we're putting a close on one year and entering another. I thought it might be a useful time, more than usual, to check in and, I guess with each of you, actually, in order, maybe Greg and Ted and Reed, and just if you could share the couple biggest things you learned in 2017 and how that's informing your key priorities going forward into the new year, 2018. I think that'd be a great way to get started.
Greg, I think you're up first.
Sure. I think, looking back to the last year, I'm just tremendously excited at seeing the range of opportunities that are in front of us and that the technology that we're investing in can continue to provide incremental benefits and experience, which we see through our A/B testing. Most excited that we have just so much more runway in front of us.
I'd say we've had a good reinforcement of the value of experimentation, getting out from just the core of television and film into things more like unscripted and other projects that are proving that we can do things well across a broad variety of different things as long as we keep doing what we started doing, which is hire great people, give them the resources to make great content, and get out of their way.
Todd, for me, it's much more continuous, coming up on 20 years here, than it is broken up in annual chunks. Certainly, our expansion around the world is phenomenal. We're continuing to invest in shows around the world. "Dark" was a big highlight. We'll have more of those from around the world in Q1. We're learning better and better about how to be an effective global company, both for consumers, for governments, and for content producers.
Terrific. Thanks. I just realized I left David out of the order there, don't worry, I'll give you plenty of questions similar to that on the way, David.
I will do my best.
Speaking of growth around the world, the most, not important, but the biggest metric investors often look for first in your results is subscriber growth. Clearly, subscriber net additions came in well ahead of your own forecast for the quarter. I guess an obvious question is sort of why and where. You addressed that a little bit in your letter saying it was broad-based. I think you cited original content slate and the growth of internet TV. I got to ask a chance just for anybody who wants to expand on that a little bit, how you did so much better coming out of the quarter than you even thought you would going into the quarter.
Ted, you want to take that about the role of the big titles?
Well, the great thing is the big players in Q1, the film Bright and certainly Stranger Things Season 2, not only landed really well with viewers and consumers but also are perfectly global, meaning that the watching was distributed almost exactly like our member base is. When a good story told well is a global product.
Other key things in Q4, whereas you pointed out just the continued growth of internet TV, and we see that because Hulu's also growing, YouTube is also growing. It's great that we're keeping up with this big internet-driven transformation and that we're pleasing our members with this extraordinary 8 million net add quarter.
Todd, just to annotate Ted and Reed, one thing is we were a little conservative going into Q4 with price changes, so it reflects a little bit of tempering of our expectations going through there. Given the broad scale strength of the content offering and then the global strength, you put those two things together and you end up with the quarter that we had in Q4, which was great.
Makes sense. I definitely want to talk a little bit about the pricing here in a minute. Before we move on to that, you talked about broad-based, basically global growth. Can I ask specifically about a couple geographies? I understand broad-based means them all. Asia has been one particular gigantic region I know of particular focus for your company. Anything you'd want to point out specifically in Asia in the quarter or more broadly over the course of this couple quarters that are going well or not well that we should know about?
I think, Todd, we're not going to do regional breakouts. I won't give you specifics on it. We definitely are seeing success, as you all know, and your channel checks and other things tell in the different markets. When we compare it to Latin America several years ago, we're very pleased with the progress that we're making through India, through Southeast Asia, through Japan, in Japan. Really all across the board, we're seeing growth penetrations that look like the first couple of years of Latin America, which has worked out very well for the company.
It's worth pointing out, Todd, that we're now lapping 2 years in our global launch. For many of these markets, we launched with a global product, not localized, not tailored to the specific market. We've added some languages along the way. We're adding content along the way. For many of these markets, they still reflect some relative youth in terms of how long we've been in the market relative to, say, Latin America, where we're 5 and 6 years in, and Europe, where we're 4 years in some of the larger markets and a little bit younger in the smaller markets in Europe.
Makes sense. One of the things that you did not cite in the investor letter, at least in terms of sub growth was, at least in the paragraph about sub growth, was some of the plans you have with partners, MVPD partners, and ISP partners. You did talk about that in a different section, but you didn't cite it referring to the sub growth. Can you talk a little bit about what contribution those partnerships made to sub growth in the quarter? Even help us box what % if you will, of net adds are on those sorts of relationships, or total members are on those such relations. Help us understand what proportion to your subscriber base and growth those type of deals are.
Well, Netflix continues to be a sort of multi-impression sale, so if somebody joins us through a partner, it isn't necessarily because that partner did a specific promotion, but it might be just the most convenient collection mechanism for that. That said, the importance of partnerships has grown as we get embedded in more ISPs, in more CE devices, in more consumer electronics and things like that. I'll pitch it to Greg at this point, but I would say, Todd, it continues to be a meaningful contributor, but not a dominant contributor in terms of being a major channel for us in terms of acquisition. Again, relative to what I said about Netflix being a multi-impression sale. Then Greg, if you want to-
Yeah. Just to add briefly, I think that's right. It's all the sort of stops along the way in the customer journey, one of the things that's working for us well is to shave off friction at each of those different points, whether it's payments or access for engagement, how you sign up. While those partners aren't the dominant source of acquisition for us, they still remain important and we'll continue to invest in them globally.
The only other thing to add there, Todd, is, as you know, most MVPDs and ISPs are regional, any one single partnership isn't particularly material to our global net additions.
Greg, when you think about the next couple of years, where essentially all smart TVs have Netflix, how do you think about the potential in the MVPD space? Roughly what percentage on a global basis are we? What might we become over five or 10 years?
Yeah. We think essentially an MVPD or the operator set-top box integrations that we are doing, we're way younger than we are in TV, for example. Unlike TV, these operator integrations have a whole bunch of consumer benefits that we haven't really been able to realize in the TV space when you think about payment integration, also it's a different demographic. Typically, smart TV purchasers are more towards the front end of the technology adoption curve. Being on a set-top box from an operator allows us to be in the place where a lot of folks are consuming linear TV, more traditional, and catching a little bit more of the later adopter, and then making it super easy for them to sign up by just actually adding Netflix to their bill.
Even more, what we're looking at now is packaging Netflix into one of those operator offerings, so they just get it as part of a bundle that they're purchasing for the operator. I think we'll see that grow in importance, but again, we're a couple of years behind where we are in smart TVs today.
Got it. One final one on those, if you don't mind, probably for David. Just how should we think about the unit economics of one of those subscribers for Netflix? Especially, I guess, comes to mind in terms of subscriber acquisition cost, getting a subscriber on your own versus through a partner, but then also any sort of churn or engagement differences that you've been yet to be able to observe about the lifetime value of those two different types of customers.
The headline would be consistent. There's nothing different about the sort of new cohorts and new partnerships that we're joining that is different than the ones we've had before. There is a churn benefit, especially if you're thinking about Netflix being bundled in with a consistently lower churn product. That has a positive benefit to the lifetime value of that subscriber.
I had one final one specifically on subs, before we get probably onto pricing. When you think about the U.S. specifically, I guess the question would be, who is left? Who is not subscribing to Netflix? Who are these new subscribers that you continue to add? Where are they coming from? One might think maybe they're among a slightly older demographic. I don't know if that's a myth or whether there's some truth to that. If there's some truth to that, how are you attracting these subscribers or these members who are just now deciding to sign up for Netflix? Who are they, and how should we have confidence you can keep hitting those elusive groups that have eluded you so far?
Well, as you recall, Todd, it was five years ago when we said we thought the market in the U.S. would be somewhere between 60 and 90 million. We're still only at 55, so we've got a ways to go just to cross into the bottom of our expectation range. We continue, as Greg said, to make it easier to access, and then the real driver is to make the big titles bigger. What happens is so many people are talking about "Bright" or "Stranger Things 2" or "The Crown," that that's what pulls in people who haven't yet joined, is all their friends are talking about the shows. That's the dominant accelerator.
Fair enough.
I think you're addressing with "Grace and Frankie," which launched its new season this week, which clearly reaches an older demographic, but it keeps getting broader and bigger every year, meaning that even though it was intended for a specific older demographic, young people love it as well, and they're discovering it through word of mouth from a lot of new sources. I think back when we talked about the market size back then, that's a very fluid market in terms of what demographics of people are watching content on the internet.
Got it. Got to talk about pricing a bit, right? Another big thing that happened in the quarter was a significant, on a percentage basis, pricing increase across most of your plans, across most of the world. You, I think, made a remark earlier that that drove some of your cautiousness in your subscriber guide. It doesn't seem to have affected subscribers in the way that was implied in your guidance. Any warnings, is it fair to say so, any impact at all that we should think about, either maybe on churn or as a barrier to new adds, and then anything different on the mix of the popularity of different plans that now there's a bigger spread between the prices around the world?
A lot in that question, I guess I'm trying to figure out what we can take away from the experience with the price increase.
Well, let's see. We moved from roughly EUR 10 to EUR 11 in Europe, or $10 to $11 in the U.S., so it's about a 10% increase. We saw very little effect on sign-ups and growth, and thus, as you said, the really strong results. You can take away from that our content is just making us to be really a primary focus for consumers' entertainment. Our responsibility is then to take that increased revenue and turn that into even better content. That's the fundamental deal. Consumers are tolerant as long as something's improving. What we have to do is push ourselves to just keep doing more incredible content, downloading, easy to use, all the things that we're doing, and thus continue to earn the trust and affection of consumers. We've been doing that very well, but we're always cautious on it.
We have no plans to try to repeat that in any way, in the near term. It's really just focusing now on the quality of the experience and the enjoyment.
I think you said before, and please correct me if I have it wrong, that investors should think about sort of a mid-single-digit CAGR in terms of average price. Is that still the way investors Assuming I had that right, any change to that based on your experience in the quarter?
I guess the tricky thing is it really has to be a reflection of the underlying quality of the experience on a relative basis. As long as we're able to continue to improve our content and our whole experience at a remarkable rate, which we could measure in viewing hours and things like that, then asking our customers to help us fund that at higher levels is reasonable. If we weren't gaining relative value for the customers, then we wouldn't be changing prices. Think of us as the North Star is not the financial plan, it's the customer satisfaction. The big way to improve the customer satisfaction even further is to ask to get paid a little bit more on the current service so that we can make it even better.
Right. I think people come up with that value proposition based on how much time they're watching Netflix and how much they're loving that time. Speaking of content. You clearly have confidence that your investments in content are paying off. You can point to growing subscribers, growing pricing. You've telegraphed to almost $8 billion of P&L content spend for the coming years. Let me start with this question. Why is that the right number? Why not nine or 10 billion, or why not six or seven? How do you circle in on that range of spend as being where you're comfortable for the next year, at least?
At any given time, that is the question. What is the right number? The big one we find is that as we keep investing in our content, we're growing hours of viewing and growing hours of engagement and growing net subs, then you're getting good return on the investment. The question is, the bet why this number is the right number is that you don't want to get too far ahead of that number. We keep investing forward, based on the confidence of how we're doing. At some point, if we're seeing we're not growing viewing hours, we're not growing subs, we're not growing enjoyment, then you've hit a point of diminishing returns. We just haven't seen that yet.
Got it.
Todd, it is $8 billion, as you pointed out, for this year, but it will definitely, of course, be higher in 2019 and 2020. Don't think of it as $8 billion as some new plateau. Instead, it's just a point in time as we grow both the revenue and our content budget.
One of the things that you are seeing us do, Todd, along those lines, is to increase marketing somewhat, slightly, relative to content, to multiply the value of that content across the business. That is an indication where we're seeing feedback that, hey, spending a little bit more on marketing is actually going to be better for the business overall because it amplifies the value of the content.
When we think about the $8 billion, $9 billion, $10 billion and growing, as investors, how should we think about the execution risk associated with that? That is a lot of projects to manage, a lot more than Netflix used to manage last year and five years ago. How much time do you spend thinking about that, and how much of a concern from an investment standpoint do we get in terms of your ability to execute on that much spend?
Well, we have been doubling the effort every year for the last five years, year-on-year. The way I look at it is, the investment that we try to make is we try to make sure that we're restricting ourselves to the real core executive skill set, which is picking great people. Both picking great executives to help shepherd these projects, but also picking great creatives and great projects to run with. If I had the same number of people at the same quality levels as I did five years ago, I'd be anxious. We've been ramping ourselves up and ramping up our work with creators to continue to keep scaling the business. What our focus is on is to continue to do it at the same level that we have year-on-year, even with 100% increase in volume.
Let's talk about Bright a little bit. It's obviously.
An epic moment, an incredible story.
That's the words we're looking for, Todd. That's the word.
There's a lot of words. The critics had some other words for it, but your members seem to have loved it. I just wondered if you can help us reconcile that. How can you reconcile the disconnect between the critical response to that film and what I think you portrayed as a very positive member's response to that film, so much so that you greenlit a sequel. How do you reconcile that? What's going on with that?
Yeah. The consumer response, the viewer response to the film has been great on every kind of internal measurement that we look at in terms of viewing and reach. We said it's one of our most watched pieces of original content, meaning, TV show or film, that we've ever had on Netflix. If you look at all the kind of external indicators around how people feel about the movie, user reviews on Rotten Tomatoes or user ratings on IMDb, you see a very positive experience with that film. The way we reconcile it is that critics are an important part of the kind of artistic process, but they're pretty disconnected from the commercial prospects of a film. The way we look at it is if people are watching this movie and loving it, that is the measurement of success.
If the critics get behind it or don't, that is a select group of kind of social media influencers that you look at who are talking to a specific audience.
I would say, Todd, from an investor standpoint, you want to focus on things like Google Trends relative to other movies like "Jumanji" or something that opened up at the same time. The critics are pretty disconnected from the mass appeal, especially remembering that we're movie international at this point, and most of those critical reviews you read are English language and usually just U.S.
Speaking a little more broadly about the film budget altogether, I think you've talked about some rather ambitious plans, it seems to me, at least just for 2018. I think I've heard 80 individual film projects on the slate, something like that.
That's the productions and acquisitions, yes.
Got it. "Bright" is an example, I think, of a bigger sort of tent-pole, sort of, I don't know if you'd use that word, but it obviously a big cornerstone film. Not all 80 of those films are going to be like that, does the success of "Bright," how does that shape your thought about what the profile of your movie slate goes for? Of the $7 and $8 billion of content spend, are you willing to share, how much of that, roughly, is for what you would call films?
Ted, there's probably a portion for me and a portion for Ted. Ted, let me take the.
Sure. The success of Bright is awesome for us. It doesn't necessarily change our outlook in terms of how much more we're going to do on the film front. Ted has a portion already set aside for films. I think he hasn't really changed that. I think it probably increases his confidence in that portion set aside, but I'll let him answer. In terms of from an investor standpoint, feature films are an important aspect of our service that we think we need to get right and provide. It's a portion of that spend, but we don't talk in specifics about the exact proportion of the spend. Ted, you can comment on it.
Yeah, I would say the profile of our original films range anywhere from a movie like I Don't Feel at Home in This World Anymore, that was a very low-budget film that opened at Sundance Film Festival and ultimately won the Sundance Film Festival last year, all the way up to the kind of tent-pole sci-fi action movie like Bright. What we've seen is that each one of these milestones or budget milestone is that we've had reinforcement in the performance of those films to increase our confidence that this form of subscription is a good way to monetize content at all different budget ranges, including the largest budget ranges for films.
Where I would say a while ago, I would've said, "Look, I'm highly confident that we can make small films work well on Netflix, and then next year I'll be more confident that we do medium films well on Netflix." We've seen success at every one of these budget profiles, and we're really excited that we can continue to push that out and please more and more people if we're not constrained to small-budget films.
Connected to all this, to me, just the sheer volume of output that continues to be added to the service every day. There was a sentence or paragraph in the investor letter that talked about, and David mentioned this before, about increasing marketing spend faster than increasing revenue. A clause that you put in there that caught my attention said, "Because our testing," something says that this would be a good thing to do. Greg, maybe, or whoever wants it, can you tell us a little more about what that testing is? What are you testing? Why does it give you confidence that there's a good return on this marketing spend? We'd love to learn about that a little bit.
Sure. I think as you're aware, we use experimentation and testing to inform as much of the business we possibly can. It's been super exciting to actually bring that experimentation into marketing, and marketing around supporting these big title brands and how we can expose them to both members, non-members, and grow viewing and acquisition through those approaches. We basically run the same kinds of experiments and have determined from that that this is a great way to spend that money to support our growth.
Todd, that is all accurate. We look at it as additive input on top of the service. Our sort of holy grail dream is if the service was so good at promoting the new content in such relevant ways, that we wouldn't have to spend externally. Think of it as a little bit of a competition between Greg and Kelly Bennett spending to see who can drive the growth of the titles most effectively.
As we are right now, it still is a really good financial investment to increase on the marketing, and that may continue to be so. We're always also trying to improve the product and the organic reach, social and PR of the title marketing, where you end up having to spend less on paid marketing. We really, as you can understand, steer by the data where we're doing these city-level, country-level experiments to see what are the efficient ways and productive ways to get, say, "Bright" viewing very large. A title that we recently had, "The End of the F***ing World," and that's been incredible for us with not much marketing, and then we're boosting on it.
Again, we have titles at all different ranges, and we want to get people talking about those titles amongst their friends so that you get those social dynamics, which then help us grow.
Ted.
I've been anxious not to say that title the entire call, you brought it up.
Exactly. We saw it on broadcast.
What's good is that there have been shows that have benefited greatly from the marketing test and other shows that the site is perfectly efficient promoting, like to your point, which is it tells us there's a fertile ground to learn more, for sure.
Yeah.
Todd, just to add, that increase in marketing spend is obviously embedded in our operating margin guidance. We've committed to about 300 basis points of an increase in operating margin. That's obviously factored in that increased marketing.
We didn't plan it. That's a perfect tee up for one ridiculously mundane sort of accounting question I wanted to ask before we left content. I guess Spencer or David, there was a write-off in the quarter. I guess that's sort of run-of-the-mill business. Anything you want to say about that? More broadly, you've had another year of experience. Anything about the amortization scheme for the value of content and the way that's shaped that you've learned or would change? That definitely affects perhaps margins going forward.
I don't think there's much to add to that, Todd. As we've always said, as is we've written in our content accounting overview slide deck on the IR website, we do evaluate our content library for impairment. When we do abandon a project, in this case, some unreleased projects, we do write down the value of that. We thought from an investor transparency perspective, that that would be a good thing to highlight this quarter. Really not a material factor in the quarter, as you saw from the results, we did exceed our operating income and contribution profit targets.
These types of business write-downs are an ongoing facet of Ted's world in terms of producing content. We just hadn't had one of this magnitude and related to the societal reset around sexual harassment. It was somewhat unusual in that respect.
I think it's probably a good indicator, too, of when you have a lot of projects going, high-profile projects, that we've gotten moved away from much concentration risk of any one project having a material impact.
All right. Segueing on to a topic of industry consolidation and what's going on with Disney Fox, which some investors are probably wondering why it took me so long to get to that. Got several questions about that, maybe just start at the high level. I guess maybe Reed, just Disney is trying to acquire Fox. What are your thoughts?
As surprised as anyone else that Fox is willing to sell. To have all those cable networks together in one bundle gives them tremendous pricing power against MVPD, I could see the attractiveness of it. They're also putting together a Disney direct-to-consumer service, which we think will be very successful because Disney has super strong brands. We'll see. We don't see it as a threat to us any more than Hulu has been. It's a great opportunity for them. Will it trigger a wave of consolidations? That's possible. Honestly, we try as much as possible to focus on our own consumers. How do we do the shows that we can do and grow our business? These kind of big U.S. media company mergers are pretty peripheral to us. You wouldn't expect us to be very involved in that.
There's a very common question among investors, which is, well, there's a fair amount of Disney and Fox-owned content on the Netflix service, and investors wonder whether there's a risk that that will be taken away from you. I guess I'd like to ask that question, and to the extent in your answer, you could help but quantify to the extent there is some content that might be at risk over time, how much?
You shouldn't think of it as risk. I think we have strategically, and they have strategically been moving in this direction for a long time. It was one of the reasons we entered into original programming was that if we got to the place where networks didn't want to sell us their content in second windows, that we would be replacing that by creating our own original programming. That is playing out in that direction. The things that are on the site today, most of those are kind of run-of-series deals. A thing like "American Crime Story" with "People v. O. J.," as long as they keep making those shows, they continue on Netflix. Our Marvel series that Disney produces for us, we own those shows, and they run until we cancel them.
There's no risk of surprise, I should put it that way, that their content would be coming at lower volume from Disney and Fox. That was coming in that direction for a long time.
To reinforce that point, the $17.7 billion of commitments that we have is exactly that.
Right.
It's multiple years of content that we have licensed. When we say we own those Marvel shows, we get to use them for a very long time.
Correct.
Underlying copyright, in that case-
Right
is still owned by the Marvel side. For example, Todd, on the Pay-1 deal, movie deal we have with Disney in the U.S. That won't get renewed, clearly. They'll keep that. Again, in most countries of the world, we don't have the Pay-1 movie deal from Disney. We don't look at that of itself as a hugely. It's great content, but we're able to grow without it just fine.
I wonder if your level of, I don't know if concern is a good word, your level of that thinking you do on this issue would change if you thought about this expanding further. Some investors believe, well, this is just a start. Now Warner, now Universal, maybe all these companies are going to start rethinking their own strategies with their Pay-2 windows, where they want their content and-
The big bet they have to make-
Can I answer? I would say, the big bet they have to make, Todd, is can they make more money licensing their content to us or somebody else than by having their own services and managing their own services? That remains to be seen.
CBS, for example, is taking a middle road where it's got CBS All Access with a bunch of shows. They licensed Star Trek to us internationally, which funds most of the production. Think of it as an evolving mix. Fundamentally, if we can monetize content really well, then people will sell to us because we can pay them. That's ultimately the core economic driver. Of course, a lot of what Ted's been forecasting and working on these past five years is going directly to producers and talent. We're not going through those other aggregators. Our exposure is significantly less than it used to be, and we're feeling good about the path we're on.
You've made it clear both in the letter and your opening remarks in terms of competition from the new Disney direct to consumer services. Your opinion on that is well understood, I think. Let me ask you this nuance. Is there anything to worry? It seems like Disney might be considering more of a stratified type of consumer offering. We don't know for sure, but it seems maybe there would be more of a kids/family type of service and then maybe a more adult type of service, maybe a sports type of service. Do you think that there's a market out there that is more interested in a more narrow service at a lower price compared to Netflix, which is a more broad concept, I think? Is there anything about that that is informing how you think about the space?
That's a great illustration of the benefits of competition. Everyone knows the cost of competition. The benefits are your competitors are challenger brands, so they don't tend to follow your strategy, if you call us the leader in streaming. Then they'll try many things, separate sports, other flavors. If some of it works, then we get to learn from that. Our view would be to let them try to innovate on those aspects and watch what they do and learn from consumers. Do they really love it? It doesn't change our strategy. Think of us as our thing is working, and what we have to do is not get distracted. We have to do content at a scale very few people have ever done before. We have to do marketing and product at that.
If we do that, the rewards should be very solid for us. We've got a path ahead. Everyone else in streaming is trying to find one. Again, we have to watch them and learn. I think, in particular, Disney, with its strength of brand and unique content, will have some real success. I know I'll be a subscriber of it for my own personal watching in the same way. As many Disney and Fox executives also subscribe to Netflix and watch our shows. What I see is we'll all learn from each other, and total streaming will grow faster because of the competition.
Let me ask one very specific, but I think in a big market question about Disney-Fox. If that goes through, I guess Disney would presumably become the owner of Hotstar in India, pretty big user base for that. In India, very obviously big, but particular market, does that change the dynamic in your mind at all in that market?
Not particularly. YouTube gets the most streaming in India, but Hotstar gets the second most. It's not a wildly different landscape. That wouldn't particularly change our view in India. Hotstar is a great competitor, sometimes collaborator now, and I'm sure they would continue to be under Disney.
When you describe the competition in the investor letter, you segmented into, at least the way I read it, into non-advertising-supported service like you guys and Amazon, and then free advertising-supported service. I guess Hulu would fit in somewhere in between there. You've talked in the past about the role-- People ask you all the time, so I'm going to ask you again about whether advertising would ever fit into the Netflix service at some bargain you'd make with the consumer. Do you continue to see not having advertising as an important strategic differentiator for Netflix?
It is a core differentiator. Again, we're having great success on the commercial-free path. That's what our brand is about. We're going to continue to expand the relevance of a commercial-free service around the world and make that so popular that consumers are very used to and appreciate Netflix.
Todd, I think we have time for one last question.
Well, that always puts the pressure on. I'm going to roll up one last question. I haven't asked at all really about the guidance. I'll try and make it one question. I think, Reed, you're on record saying that the more free cash flow that Netflix invests, the happier investors should be because that shows the confidence you have in the service. If I look at the $3 billion-$4 billion free cash flow loss for next year, combine that with the P&L margin expansion, I
What will be the sign of success that the investors can look for to have comfort that that level of investment is going to generate the returns that you guys have the confidence in?
Well, I think you have to go on the track record. We've been able to convert great shows, let's take Bright as an example, where the cash out for that is one to three years before release, then it turns into an enormous movie for us. We've had that track record for the last couple of years of greater and greater scale, and we're continuing to take it up a notch. Many investors were quite reasonably concerned about our international expansion. Would we be popular in LATAM or Europe or Asia? That's a reasonable concern. Many companies have issues there. We're pretty focused on the great execution of this narrow focus of what we do, not getting distracted by everybody else.
I think the core thing is betting on the track record of our ability to invest that money well so that as we bring those content to the service in 2019, 2020 and begin to expense it, that it's great content that's really driving value. The core thing is betting on the track record that we have.
If I can beg a CFO angle on this, Todd, in terms of it's not too far off our indications last quarter of where we were going. Yes, the content spend has somewhat come up in some people's minds in terms of our $7.5 billion-$8 billion guide. In terms of where we've grown the business, how much we grew the business in 2017, seeing accelerating growth in the business, back to Reed's comment on our track record, it's not too far off. It might be a little bit higher in terms of that reinvestment in the business. I do think that we're starting to see some of the factors influencing the working capital needs on content start to moderate a bit as we've pushed into more categories, as we've grown the content.
We want to leave ourselves enough room for continued growth and acceleration of that growth of the business. We are seeing some of those pressures moderate a bit. As our operating profit grows, we'll be able to pay more for that organically.
Perhaps if I could beg the IR angle on top of the CFO angle, I would just lastly say that since this is really just a timing of cash payment issue, we really view the P&L and the growing operating profits and the growing operating margin as really the indicator that the strategy is working. That's why we try to give you guys as much transparency as we can with respect to how we're amortizing the content so you have confidence in the income statement.
Just to assure everyone that we're not resting with a great 2017, coming up in the quarter, we still have incredible launches ahead of us, like "Altered Carbon," which is a huge sci-fi series that launches on February 26th. January 26th, sorry. Second seasons of our French series, "Marseille," "Jessica Jones," "Santa Clarita Diet," and "A Series of Unfortunate Events" coming up later in the quarter. A sleeper that I think people should keep an eye on is a series called "Everything Sucks!" New installments of our David Letterman show, "My Next Guest Needs No Introduction" coming up and some great new launches that we're really excited about. Keep an eye out, more to come.
Well, thank you everyone. Thank you, Todd, for doing the interview. We couldn't be more pleased with the growth of the business. We're definitely very focused on improving what we do. Thank you, everyone.